Bank of the People
| Joint-Stock Bank | |
| Fate | Absorbed by Bank of Montreal |
| Successor | Bank of Montreal |
| Founder | James Lesslie |
| Headquarters | Toronto, Upper Canada |
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Key people
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James Leslie, Dr John Rolph, Francis Hincks |
The Bank of the People was created by radical Reform politicians James Lesslie, James Hervey Price, and Dr John Rolph in Toronto in 1835. It was founded after they failed to establish a “Provincial Loan Office” in which farmers could borrow small sums guaranteed by their land holdings. The Bank of the People was the only bank in Upper Canada not to suspend payments during the financial panic of 1837-8. Many of the shareholders, however, took part in the Rebellion of 1837 and the Family Compact plotted to have it taken over by the Bank of Montreal in 1840.
Until 1835, every bank in Upper Canada required a legislated charter which established it as a legal person able to sue, and be sued at law. Only two Banks had been chartered: the Bank of Upper Canada and the Commercial Bank of the Midland District. Both banks were controlled by the "Family Compact" who used their control of the currency supply and credit to control trade and ultimately, the farmers. They had a "licensed monopoly" to print paper money, which reduced competition.
In 1835, Dr Charles Duncombe, a Reform politician in the Legislative Assembly, was part of a "Select Committee on Currency" that offered a template for the creation of based on several successful Scottish banks. The Scottish bank system had always differed from the English system. The difference between the English chartered banks and the Scottish joint stock banks lay almost entirely on the issue of stockholder liability and its implications for the issuance of bank notes. The joint stock banks lacked limited liability, hence every partner in the bank was responsible for the bank’s debts to the full extent of their personal property. The chartered banks, in contrast, protected their shareholders with limited liability and hence from major loss; they thus encouraged speculation. The chartered banks would loan out many more banknotes (little more than bank issued I.O.U.s) than they had specie (legal tender) to exchange for those notes once redeemed. The more banknotes they loaned out the more interest they made, but at the increased risk of bankruptcy. Protected by limited liability, their shareholders put profit above risk.
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